Dimon: Credit Crunch Over, Not Recession Threat

JPMorgan Chase Chairman and Chief Executive Jamie Dimon Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.

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Jamie Dimon

The slump in mortgage and corporate loan markets could bottom out this year, said Dimon, whose bank largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.

Yet the economy may face a longer-term challenge even as financial markets begin to function again, the "slower burn" of a recession that may rival the severity of the 1982 contraction, he said.

These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last through next year and into 2010, he said.

If that happens, Dimon warned that New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to $900 million by year-end.

Dimon further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profit.

In the current quarter, Dimon said subprime mortgage losses could rise to between $200 million and $250 million, with prime mortgages generating about $100 million in losses.

Loss rates in JPMorgan Chase's massive credit card business are expected to reach 5 percent in the second quarter and rise to as high as 6 percent next year, while at the same time interest and fee revenue decline.

The third-largest U.S. bank also expects to write down "several-hundred-million" dollars of auction rate securities, he said.

Separately, Dimon said JPMorgan Chase expects to report a $1 billion second-quarter gain related to the Bear Stearns Cos takeover, though some merger benefits will be less than predicted while some losses will drag on results.

Dimon also told a UBS investor conference that JPMorgan has identified positions for 40 percent of Bear's nearly 14,000 employees.

To date, 75 percent of people decisions from the merger have been completed.

JPMorgan has already realized $200 million of losses reflecting its 49.5 percent ownership of Bear since April 8, Dimon said.

He warned that JPMorgan expects about $200 million of further Bear losses.